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The Satisfaction Conundrum

Well I was movin' down the road in my V-8 Ford
I had a shine on my boots, I had my sideburns lowered.
With my New York brim and my gold tooth displayed
Nobody give me trouble 'cause they know I got it made
I'm bad, I'm nationwide.

-ZZ Top

No matter how much I am around technology, I am continuously
amazed. As a truly non-technical person myself, it all seems like
magic.

Currently, I am moving at 524 mph at 39,405 feet linked not only to
the Internet, but to Silicon Valley Bank's internal network where I
have access to everything I do at the trading desk. I can swipe a
credit card and order a drink, a meal or a movie on my personal
screen. Best of all, when I land I am assured my BlackBerry will
not go crazy with new messages as I can clean my in-box in between
thoughts as I write this.

My farmer grandfather would never understand the above paragraph -
and he only passed some 35 years ago. What will the next 35 years
look like?

Thinking back, it is easy to see that most recent innovation came
without any government regulation attached. Indeed, almost by
definition innovation is generated in the mind of the innovator,
unnoticed by others including the government. Perhaps this is what
gives me pause about last week's focus on the regulatory
environment.

There is a price for everything - there is no free lunch as they
say. And the price of innovation is risk. Entrepreneurs know this
well on the individual level, but it also exists on a societal
level. As a society, we can allow free thinkers to explore the
outer limits of their imaginations, perhaps finding a nugget of
additive creativity among many of Charlie Brown's rocks stored up
from Halloweens past. The benefits of the nuggets run for decades,
while the costs of the rocks end quickly. But regulate the bounds
of our activities and those nuggets will
never be discovered.

It is hard to disagree that Wall Street went a little crazy in the
past decade or so, especially when it comes to the mortgage market,
CDS or other financial creations. But is the answer increased
regulation?

Don't the investors share any of the responsibility? Certainly the
shareholders of these companies should have been more in tune.
After all, most equities are held by institutional ... ahem ...
professional investors who should know their vote counts. On the
other hand, there are other end-investors who never read the
prospectuses of the esoteric investments they may have heard about
on the cocktail party circuit and never ensured their investment
advisors followed their investment directives. When did caveat
emptor come to mean government bailout?

I think much of the problem stems from our evolution as a "hard
earned pay" society to a "grab a cheap buck" philosophy. The phrase
"immediate satisfaction" used to be rarely heard and now it's met
with shrugs and acceptance as one of our society's major obstacles.

Investors would benefit from remembering that the value of hard
work includes watching over one's own dollars and cents instead of
relying on implicit guarantees or potential, future lawsuits. If
they have neither the time nor inclination to do so, they have
other options, such as avoiding complex strategies in their
self-directed investments or hiring fiduciaries to perform them.

Today's "immediate satisfaction" mentality has surely driven much
recent innovation and improvements in production efficiencies.
Broader regulation is designed to decrease the downside of such
risk taking to the taxpayer, but at the expense of more efficient
products and services that add to life quality. Balancing these two
is key to guiding toward a better tomorrow.

Anyway, I have to stop writing now and find out why my movie keeps
cutting out and where that cabernet I ordered might be.

Key Developments

April's international flow statistics revealed a net selling of
U.S. securities by foreigners to the tune of $2.6 billion. Taking a
closer look, foreign-based investors swapped short-term bonds for
longer-term, although total holdings of short-term Treasury bills
remain near their all-time high at just over $800 billion. As
U.S.-based consumers slow their foreign purchases of goods, expect
foreign-based investors to pull back their U.S. investment
holdings.

Inflation remains well-contained even as inflationary expectations
are on the rise as evidenced by increase TIP breakeven yields. On a
year-over-year basis, the CPI dropped 1.3 percent driven primarily
by decreased energy costs from one year ago. This was the lowest
annual reading since 1950, which really only reflects the extreme
price volatility we are facing today.

Weekly initial jobless claims rose slightly, while continuing
claims fell for the first time since the January 2 release. The
sharp and extreme increase in joblessness will weigh on various
economic statistics over the next several months or even quarters.
Though the rate of decline has slowed, the economy continues to
deteriorate.

Well I was movin' down the road in my V-8 Ford I had a shine on my boots, I had my sideburns lowered. With my New York brim and my gold tooth displayed Nobody give me trouble 'cause they know I got it made I'm bad, I'm nationwide.

-ZZ Top

No matter how much I am around technology, I am continuouslyamazed. As a truly non-technical person myself, it all seems likemagic.

Currently, I am moving at 524 mph at 39,405 feet linked not only tothe Internet, but to Silicon Valley Bank's internal network where Ihave access to everything I do at the trading desk. I can swipe acredit card and order a drink, a meal or a movie on my personalscreen. Best of all, when I land I am assured my BlackBerry willnot go crazy with new messages as I can clean my in-box in betweenthoughts as I write this.

My farmer grandfather would never understand the above paragraph -and he only passed some 35 years ago. What will the next 35 yearslook like?

Thinking back, it is easy to see that most recent innovation camewithout any government regulation attached. Indeed, almost bydefinition innovation is generated in the mind of the innovator,unnoticed by others including the government. Perhaps this is whatgives me pause about last week's focus on the regulatoryenvironment.

There is a price for everything - there is no free lunch as theysay. And the price of innovation is risk. Entrepreneurs know thiswell on the individual level, but it also exists on a societallevel. As a society, we can allow free thinkers to explore theouter limits of their imaginations, perhaps finding a nugget ofadditive creativity among many of Charlie Brown's rocks stored upfrom Halloweens past. The benefits of the nuggets run for decades,while the costs of the rocks end quickly. But regulate the boundsof our activities and those nuggets willnever be discovered.

It is hard to disagree that Wall Street went a little crazy in thepast decade or so, especially when it comes to the mortgage market,CDS or other financial creations. But is the answer increasedregulation?

Policy

About Us

Silicon Valley Bank is registered in England and Wales at 41 Lothbury, London EC2R 7HF, UK under No. FC029579. Silicon Valley Bank is authorised and regulated by the California Department of Business Oversight and the United States Federal Reserve Bank; authorised by the Prudential Regulation Authority with number 577295; and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. Silicon Valley Bank is a subsidiary of SVB Financial Group, a Delaware corporation and is an affiliate of SVB Financial Group UK Limited. SVB Financial Group UK Ltd is registered in England and Wales at 41 Lothbury, London EC2R 7HF, UK under No. 5572575 and is authorised and regulated by the Financial Conduct Authority, with reference number 446159. SVB Financial Group and its subsidiary Silicon Valley Bank are members of the Federal Reserve System and Silicon Valley Bank is a member of the FDIC.